They Call The Election A Horse Race; It Has Real Bettors, Too

The Dublin-based prediction market site Intrade lets users bet money on whom they expect to win a variety of U.S. political races, including the presidential race.

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Originally published on October 19, 2012 7:12 pm

By this point in the campaign season, the presidential polls may have your head spinning. Romney's up 7 points in one, Obama's up 3 in another ... and on any given day, a dozen other polls are swirling, each offering a different take.

But there is a market out there that distills all those data down to one simple predictive number — and gives you a chance to bet on it. Sure, there's likely a bookie in your city who could give you odds on the presidential race and happily take your bet. But for most of the nation's history, would-be political bettors had another option: betting markets.

Before Polling, Gauging The Political Winds

Koleman Strumpf, an economics professor at the University of Kansas, says these markets have been around since the beginning of our democracy and were especially popular in the late 19th and early 20th centuries.

"There was a period in the early part of the 20th century when this market literally existed right outside Wall Street," Strumpf says. It was outdoors, right on the curb, so it became known as the "curb market." "People would actively bet on all sorts of elections," he says. "And for sure, in the period right about now in October, there [were] huge amounts of betting activity."

Political betting was also an important tool for newspapers before the era of public opinion polling. Outlets would report on the action to get a sense of which candidate was winning.

A journalist reporting on the market "would list not only what the prices were, to give you an idea who was leading," Strumpf says, but "would also list who was making these investments or bets."

That meant that readers would know if the bets were being placed by specific traders — or by politicos from the New York Democratic political machine Tammany Hall, Strumpf says.

Off The Curb ... And Online

The markets were very accurate predictors, but they faded from the front pages once election polling came into its own. But in recent years, they've re-emerged in a couple of forms. One is the Iowa Electronic Market, an online small-stakes exchange run by the University of Iowa's College of Business, where you can buy a share of Obama or Romney to win.

"It works kind of a lot like a stock market, except for instead of trading shares of IBM or Johnson & Johnson, you're buying shares of candidates," says Strumpf. "If you own a share of Mitt Romney and he gets elected, you get a dollar in this market. If he doesn't win, your share expires worthless."

On Friday, a bettor could buy a share of Mitt Romney for just under 40 cents, which indicates the traders think Romney has a 40 percent chance of winning the election. Meanwhile, President Obama's odds of winning are a little over 60 percent — at a share cost of about 60 cents.

It's technically illegal to bet on a presidential campaign in the United States. However, the Commodity Futures Trading Commission, which regulates commodity futures and options markets, has declined to rule on whether the Iowa market is legal.

Intrade, based in Ireland, is a larger and better-known online prediction market.

"We've got a good record when it comes to elections," says Carl Wolfenden, Intrade's operations manager. "Back in 2004, the markets correctly predicted a George W. Bush victory, as well as picking the winner of all 50 states."

Distilling A Morass Of Variables

Thus far, Wolfenden says, almost 8.5 million shares, worth almost $85 million, have been traded on the 2012 presidential election. Americans betting in the Intrade market are in a legal gray area, but the site does have some American traders — although it's unclear how many. Currently, Intrade's odds are about the same as the Iowa market's: a 60 percent likelihood of an Obama victory.

Strumpf says those odds are especially helpful for the average person or the water-cooler pundit, because they reflect all the election variables, distilled into a single predictive number.

That essentially means the investors "are just basically looking at these polls, and lots of other information and processing it basically for you," Strumpf says.

So even with a recent Gallup poll indicating Romney is up by 7 points, the people putting down real money are reminding us that it's a bit more complicated, with swing states and the Electoral College all figuring in. And, at least for the moment, those investors are saying they still expect Obama to win.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.

MELISSA BLOCK, HOST:

And I'm Melissa Block. Have election polls got your head spinning? Mitt Romney up by 7, President Obama up by 3 and a dozen other polls with a dozen other results - well, take heart. We're going to introduce you now to a place that distills all of that data into one number that claims to predict the outcome of the election.

It's an election market and NPR's John Ydstie reports you can bet on it.

JOHN YDSTIE, BYLINE: No doubt there's a bookie or two in your city who would give you odds on the presidential race and be happy to take your bet. But for most of the nation's history, we've had another option - election betting markets. University of Kansas economics professor, Koleman Strumpf, says they've been around since early in our democracy, but were especially popular in the late 19th and early 20th centuries.

KOLEMAN STRUMPF: There was a period in the early part of the 20th century when this market literally existed right outside Wall Street.

YDSTIE: It was outdoors, right on the curb, so it became known as the curb market.

STRUMPF: People would actively bet on all sorts of elections. And for sure, particularly in the period right around now, October, right before the election, there were huge amounts of betting activity.

YDSTIE: And before the era of public opinion polling, newspapers would report on the action to get a sense of which candidate was winning.

STRUMPF: So the reporter for, say, the New York Times would go down and would report on this market and he would list not only what the prices were, to give us a sense of who was leading, but he would also list who was actually making these investments or bets.

YDSTIE: The markets were very accurate predictors, but faded from the front pages once election polling came into its own. However, they've re-emerged in recent years, in a couple of forms. One is the Iowa Electronic Market, an online small-stakes exchange where you can buy a share of Obama or Romney to win.

STRUMPF: It works kind of a lot like a stock market, except for instead of trading shares of IBM or Johnson & Johnson, you're buying shares of candidates. If you own a share of Mitt Romney and he actually gets elected president, you get a dollar in this market. If he does not get elected, your share expires worthless.

YDSTIE: Today, you could buy a share of Mitt Romney for just under 40 cents. That indicates the traders think Romney has a 40 percent chance of winning the election. Meanwhile, President Obama's odds of winning are a little over 60 percent and one of his shares costs about 60 cents. We should say here that it's technically illegal in the United States to bet on a presidential election.

However, the Commodities Futures Trading Commission has declined to rule on whether the Iowa market is legal or not. There's another larger and better-known online prediction market called Intrade. It's based in Ireland and Carl Wolfenden is its operations manager.

CARL WOLFENDEN: Yeah, we've got a good record when it comes to elections. Back in 2004, the markets correctly predicted a George W. Bush victory, as well as picking the winner of all 50 states.

YDSTIE: Wolfenden says, so far, almost 8.5 million shares, worth nearly $85 million, have been traded on Intrade's presidential election market. Americans betting on the Intrade market are in a gray area, legally, but the site certainly has American traders. Currently, Intrade's odds are about the same as the Iowa market's - 60 percent likelihood of an Obama victory and 40 percent for Romney.

Professor Strumpf says those odds are especially helpful for the average person or the water-cooler pundit, because they reflect all the election variables.

STRUMPF: You can just go to Intrade and see this number. And this number basically reflects the wisdom or the beliefs of investors who themselves are actually looking at all these polls, and lots of other information, and are processing it basically for you.

YDSTIE: So even with a recent Gallup poll telling us Governor Romney is up by 7 points, the people putting down their money are reminding us it's more complicated. It's really about swing states and the Electoral College, which they still expect President Obama to win. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.